BETWEEN THE NEW NOISES IN THE MIDDLE EAST AND THE AID TO RIO GRANDE DO SUL
Western markets started the day on a high, with the main European indices and American market futures showing appreciation, although the latter in a more moderate way.
This increase comes after a positive session in Asia this Tuesday, driven by continued optimism that interest rates in the US could be reduced, with emphasis on indices in Japan and South Korea, which stood out in a phase of recovery.
In Australia, shares also made significant gains after the Central Bank adopted a less aggressive stance than expected, reinforcing expectations that there will be no further rate hikes in 2024.
In the Middle East, the day was also marked by significant developments: Hamas accepted a ceasefire proposal brokered by Qatar and Egypt, but the Israeli government rejected it, reintroducing volatility to the region, especially as possible Israeli invasion of Rafah.
In addition, key data will be tracked, including US consumer credit for March, UK retail sales for April and German industrial orders for March.
So far, the numbers released have been positive, suggesting that there is room for international markets to maintain optimism with the prospect of interest rate cuts starting in September.
Seeing…
00:41 — The necessary support for the state of Rio Grande do Sul enters the debate
In Brazil, the Ibovespa closed yesterday practically stable, recording a slight drop of 0.03%, reaching 128,466 points, contrasting with the positive performance of the stock exchanges in New York.
On the local scene, the Monetary Policy Committee (Copom) will begin its meeting today, whose deliberations will influence the decision on the Selic rate to be announced tomorrow.
The market is divided: some are still betting on a cut of 50 basis points, as signaled in the latest Copom statement, while others consider a reduction to 25 points more likely, adjusting the pace of monetary easing.
The effects of the recent climate and humanitarian disaster in Rio Grande do Sul will also be considered, both from a fiscal perspective and due to inflationary pressure from the likely increase in food prices.
The catastrophe in Rio Grande do Sul will be a watershed in market projections, affecting everything from the harvest to employment and economic activity in general, not just locally but across the country. The first impact is on inflation: the prices of soybeans, corn, milk, fruits and rice are expected to rise.
To date, it is estimated that around 4% of this year’s national soybean production, which would be approximately 148 million tons, has been lost, equivalent to 25% of the RS harvest.
Supply problems were also reported in some industries in other states, such as the automobile industry, which depend on components manufactured in RS. All of this should add at least 0.10 percentage points to the IPCA.
In addition to concerns about inflation, there is a debate about the necessary financial support for the state. Last night, the Chamber of Deputies approved a draft legislative decree (PDL) proposed by President Lula to accelerate the release of resources destined to recover the damage caused by the floods.
The PDL allows these resources to be released outside of established fiscal rules, a measure adopted by the Ministry of Finance to avoid changes to the target. Later, there will also be the reconstruction of the state.
The unpredictability of financial impacts on public accounts raises additional concerns, especially in an already delicate fiscal context. This reinforces the expectation of a more conservative stance on the part of the Central Bank in tomorrow’s decision.
01:59 — The saga of the agreement between Mercosur and the European Union
The trade agreement between the European Union and Mercosur continues to progress, despite unfavorable statements from political figures such as French President Emmanuel Macron.
According to Rupert Schlegelmilch, the EU’s chief negotiator, around 95% of negotiations have already been completed. Schlegelmilch has dedicated himself to meetings in Mercosur countries — Brazil, Argentina, Paraguay and Uruguay — carrying out what he describes as his final “homework”.
The objective is to have all technical aspects aligned to take advantage of any political opportunity that may arise and thus advance the formalization of the agreement.
Despite the apparent uncertainties, the European Commission, which is the EU’s executive body, remains active in negotiations. This body has a clear mandate from all Member States, including France, to continue the process.
Once concluded, the negotiations must be reported to the European Parliament and Member States, who will then issue their opinions.
However, it is the Commission that conducts the negotiations, with Member States expected to evaluate the proposed agreement at the end of the process.
Brazil plays a crucial role in these negotiations, standing out as an important producer of agricultural and mineral commodities, with the aim of expanding the influence of emerging countries in world trade through this agreement.
02:45 — The final stretch of the results season
As the US earnings season draws to a close, we see that the majority of companies (more than 70%) have exceeded earnings expectations.
However, future prospects are mixed. According to JPMorgan, double-digit earnings growth forecasts for this year for S&P 500 companies appear overly optimistic, given that these companies will face challenges associated with high interest rates.
Currently, analyst projections indicate that S&P 500 earnings are expected to grow 17% from the first to fourth quarter, which would require significant revenue growth or notable expansion.
On the other hand, BlackRock maintains that this quarter’s solid financial results justify the shares’ high multiples, despite interest rate pressures and high expectations.
This divergence of opinion comes as U.S. stock markets posted their best three-day rally since November, driven by speculation that the Federal Reserve could cut interest rates later this year.
The S&P 500 rose 1% to close above 5,180, while 10-year Treasury yields fell two basis points to 4.49%.
One notable technical detail is that the S&P 500 closed above its 50-day moving average, an indication that could reinforce confidence in the market’s recent recovery and alleviate concerns about future declines.
This was the first time the index closed above that mark since April 12, offering welcome relief after the Fed’s tumultuous decision the previous week.
03:37 — The issue of immigration
Recent revisions to US population estimates by the Congressional Budget Office (CBO), which include a predicted increase in immigration, may shed light on the unexpected economic resilience seen in 2023.
If these CBO projections come true, we could see job growth rates that are sustainably higher than typically expected.
This phenomenon occurs in a context where, despite intense discussions about illegal immigration and recent legal challenges by the state of Texas against US Supreme Court decisions, the country continues to invest significant efforts to attract qualified immigrants, such as researchers and entrepreneurs.
Historically, the US has recognized that an effective strategy for accelerating economic growth and wealth creation is to attract top talent from other nations.
A study carried out by the National Foundation for American Policy (NFAP), entitled “Immigrant entrepreneurs and US billion-dollar companies”, reveals that more than half of American startups valued at one billion dollars or more were started by immigrants.
Furthermore, about 64% of these companies were founded or co-founded by immigrants or their descendants. Assessing the full impact of immigration is complex, given the diversity of cultural, political and social factors involved.
However, it seems clear that, even considering these non-economic elements, the economic benefits brought by the admission of immigrant workers result in a positive balance for the United States.
04:23 — No ceasefire
Yesterday, the price of Brent crude rose as tensions in the Middle East intensified again, with Israel rejecting a proposed ceasefire for the Gaza Strip.
The Palestinian group Hamas had accepted a truce proposal, but the Israeli war council unanimously rejected it, claiming that the proposal did not meet Israel’s necessary demands.
In response, Israel stated that it will continue its military operations in Rafah to pressure Hamas, but also indicated that it will send representatives to meet with mediators in an attempt to explore all possibilities for a settlement.
This movement occurs in a context in which Hamas still holds hostages from last year’s attack.
That same day, the Israel Defense Forces announced new airstrikes against Hamas targets in the Rafah region.
US President Joe Biden called on Israeli Prime Minister Benjamin Netanyahu to avoid launching an all-out offensive on Rafah, highlighting his concerns about the possibility of an invasion in that area of the southern Gaza Strip, where more than one Millions of civilians take refuge from the ravages of war.
A full military operation in Rafah would certainly further intensify tensions in the region, which has already experienced periods of stress over the past month. The only potential change in the dynamics of the conflict could arise from a concrete defense agreement between the US and Saudi Arabia.
Tags: Stock market today Ibovespa maintains thousand points eye Copom positive dollar retreats
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